Free Credit Card Processing – What’s the Catch?

Credit card processing fees can be a hefty monthly expense, especially for small businesses with a low profit margin. But you need to accept credit cards if you want to increase your customer base and keep customers.

The latest trend to hit the market is to process credit cards for free. If it sounds too good to be true, it might be. Here’s what you should know.

What do you Mean Free Credit Card Processing?

First, let’s explain because as you all know, nothing in life is free. Yes, there are some fees, but a majority of the processing fees with the zero processing fee model are passed on to the customer. 

So is it free?

Not necessarily.

Credit card processors can set it up so that your customers cover the cost of you accepting their credit card payment. This cost could be as much as a 4% surcharge too.

How Does it Work to Process Credit Cards for Free?

Now it gets confusing, right? How do you charge some customers a surcharge, but not all since not everyone pays with a credit card?

The good news is that the credit card processor handles it. The bad news is that it shows up as a separate line item on the receipt showing the surcharge, so your customers will know they are paying to use a credit card at your establishment.

Is it good business practice? Let’s look at the downsides.

The Downsides of a Zero Processing Fee

It’s important to look at the aspect of a zero processing fee model from the customer’s perspective.

Is it the Norm for the Industry?

Chances are you aren’t the only business in the area offering your products or services. Your customers have options, right?

If it’s not the norm in your industry or area to charge the customers a surcharge to use a credit card, you could lose your customer base. If your customers know by coming to you they’ll pay an extra 4% on their purchase, but if they go down the street they won’t, guess where they will go?

What Does your Target Market Think?

Run a quick survey or do some research to see what your target market thinks of credit card surcharge fees. If your target market is the younger generation you ‘might’ get away with charging the surcharge and not lose a lot of your customer base.

If your target market is older, though, chances are they won’t pay the surcharge and will go elsewhere.

How Unique is What you Sell?

Do you know how just about everyone goes on Amazon to see if they can get the same product they find in person cheaper? They’ll likely do the same if you charge a surcharge for credit cards. Stores like Amazon don’t and most online retailers don’t charge the surcharge either. If what you sell can easily be found elsewhere, you could lose sales.

Will you Pay Anything?

If you go with the zero processing fee model, will you pay anything? 

You will, so don’t get fooled into thinking it’s completely free.

Always read the fine print of the agreement, but most processors still charge a monthly processing fee. Plus, there are the standard fees such as PCI compliance, and other miscellaneous fees processors can charge.

Plus, there’s another catch. Your customers that stay may choose to pay another way, such as cash (no fees on your end) or a debit card. There’s the catch. If they pay with a debit card, you still pay processing fees – it’s not free to process debit cards but you can’t charge the surcharge for debit cards – only credit cards.

Depending on your setup, you’ll likely also pay equipment fees. If you rent the equipment, you’ll have those fees otherwise some companies charge miscellaneous equipment fees that if you don’t read the fine print and ask about, you’ll pay. 

How to Avoid Credit Card Processing Fees

If the thought of passing on a surcharge to your customers doesn’t sound appealing, you have options.

Of course, you’ll want to accept credit cards since that’s how many customers pay, but that doesn’t mean you have to overpay.

A few ways to keep your costs down include:

  • Shop around for the lowest cost processor

Don’t assume all processors charge the same amount – they don’t. Shop around and ask about the fees charged. Ask for full disclosure and a written statement of what you would pay so you could compare them side-by-side.

  • Negotiate fees 

Don’t be afraid to negotiate the costs. Many processors will work with you if they see the potential in your business. Find out the average for the area and make sure that’s what you get (or less).

  • Don’t lease equipment

Try to avoid leasing equipment as that just increases your monthly costs. Instead, invest in equipment one time but make sure it’s scalable with your business.

  • Try to avoid manually entering cards

The fewer manual entries you have, the lower your credit card processing fees will be. Card present transactions that are swiped or inserted are less risky than manually entered cards, so they cost less to process.

Final Thoughts

While you can process credit cards for free, you should always read the fine print. It’s not as free as you think especially if it costs you your customer base. See what your customers think, what your competitors do, and how it would affect you if you passed along the charges.

Make sure you have enough wiggle room in your customer base to make up for the potential loss of customers or that you have a backup plan should you lose too many customers rather than them choosing to pay cash, check or with a debit card.

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